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UNCITRAL UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW

UNITED NATIONS

UNCITRAL

Practice Guide on

Cross-Border

Insolvency Cooperation


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UNCITRALPractice Guide on

Cross-BorderInsolvency Cooperation

UNITED NATIONS

New York, 2010

UNITED NATIONS COMMISSION ON INTERNATIONAL TRADE LAW


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UNITED NATIONS PUBLICATION

Sales No.: E.10.V.6

ISBN 978-92-1-133688-7

Further information may be obtained from:UNCITRAL Secretariat, Vienna International Centre

P.O. Box 500, 1400 Vienna, Austria

Telephone: (+43-1) 26060-4060 Telefax: (+43-1) 26060-5813

Internet: www.uncitral.org E-mail: [email protected]


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iii

UNCITRAL Practice Guide on

Cross-Border Insolvency Cooperation

Preface

The Practice Guide on Cross-Border Insolvency Cooperation was prepared

by the United Nations Commission on International Trade Law (UNCITRAL).

The project arose from a proposal made to the Commission in 2005 that

further work should be undertaken on coordination and cooperation in cross-

border insolvency cases, particularly with regard to the use and negotiation of

cross-border insolvency agreements. The topic was viewed as closely related

and complementary to the promotion and use of the UNCITRAL Model Law

on Cross-Border Insolvency and, in particular, implementation of its article

27, paragraph (d). In 2006, the Commission agreed that initial work to compile

information on practical experience with negotiating and using cross-border

insolvency agreements should be facilitated informally through consultationwith judges and insolvency practitioners.

The rst draft of the practice guide was developed through those con-

sultations in 2006 and 2007 and, as requested by the Commission, presented

to Working Group V (Insolvency Law) in November 2008 for discussion.

That draft was also circulated to Governments for comment in late 2008.

A revised version of the practice guide, taking into account the com-

ments provided by Governments and the Working Group, was presented tothe Commission for nalization and adoption at its forty-second session, in

2009. The text was adopted by consensus on 1 July 2009 and, on 16 Decem-

ber 2009, the General Assembly adopted resolution 64/112, in which it

expressed its appreciation to the Commission for completing and adopting

the Practice Guide (see annex II).


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v

Contents

Paragraphs Page

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-17 1

A. Organization and scope of the Practice Guide on

Cross-Border Insolvency Cooperation . . . . . . . . . . . . 1-5 1

B. Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-17 2

1. Notes on terminology . . . . . . . . . . . . . . . . . . . . . 6-12 2

2. Terms and explanations . . . . . . . . . . . . . . . . . . . . 13 4

3. Reference material . . . . . . . . . . . . . . . . . . . . . . . . 14-17 6

I. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-20 9A. The legislative framework for cross-border

insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-3 9

B. International initiatives . . . . . . . . . . . . . . . . . . . . 4-20 10

1. Model International Insolvency Cooperation

Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 11

2. Cross-Border Insolvency Concordat . . . . . . . 6-8 11

3. UNCITRAL Model Law on Cross-Border

Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-16 124. Regional arrangements . . . . . . . . . . . . . . . . . 17-19 15

5. Guidelines Applicable to Court-to-Court

Communications in Cross-Border Cases . . . 20 16

II. Possible forms of cooperation under article 27 of

the UNCITRAL Model Law . . . . . . . . . . . . . . . . . . . 1-21 17

A. Article 27, paragraph (a): Appointment of a

person or body to act at the direction ofthe court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-3 18

B. Article 27, paragraph (b): Communication of

information by any means considered

appropriate by the court . . . . . . . . . . . . . . . . . . . 4-10 18


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vi

Paragraphs Page

C. Article 27, paragraph (c): Coordination of the

administration and supervision of the debtors

assets and affairs . . . . . . . . . . . . . . . . . . . . . . . . . 11 21

D. Article 27, paragraph (d): Approval orimplementation by courts of agreements

concerning the coordination of proceedings . . . 12-13 22

E. Article 27, paragraph (e): Coordination of

concurrent proceedings regarding the same

debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-16 22

F. Article 27, paragraph (f): Other forms of

cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-21 23

1. Questions of jurisdiction and allocation ofdisputes among cooperating courts for

resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-20 23

2. Coordination of the ling, determination

and priority of claims . . . . . . . . . . . . . . . . . . 21 25

III. Cross-border insolvency agreements . . . . . . . . . . . . . 1-200 27

A. Preliminary issues . . . . . . . . . . . . . . . . . . . . . . . . 1-38 27

1. Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-9 27

2. Circumstances supporting use of a

cross-border insolvency agreement . . . . . . 10 29

3. Timing of negotiation . . . . . . . . . . . . . . . . . 11-14 31

4. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-18 32

5. Capacity to enter into a cross-border

insolvency agreement . . . . . . . . . . . . . . . . . 19-23 33

6. Format . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-26 357. Common provisions . . . . . . . . . . . . . . . . . . 27-30 36

8. Legal effect . . . . . . . . . . . . . . . . . . . . . . . . . 31-33 38

9. Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . 34-36 39

10. Possible problems and means of resolution 37-38 40

B. Comparison of cross-border insolvency

agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39-200 40

1. Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40-51 41

2 Terminology and rules of interpretation . . . . 52-55 48

3. Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56-89 50

4. Administration of the proceedings . . . . . . . . 90-105 65


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vii

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5. Allocation of responsibilities between the

parties to the cross-border insolvency

agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106-145 71

6. Communication . . . . . . . . . . . . . . . . . . . . . . . 146-181 907. Effectiveness, amendment, revision and

termination of cross-border insolvency

agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 182-190 105

8. Costs and fees . . . . . . . . . . . . . . . . . . . . . . . . 191-194 108

9. Safeguards . . . . . . . . . . . . . . . . . . . . . . . . . . . 195-200 110

Annexes

I. Case summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

II. Decision of the United Nations Commission on International

Trade Law and General Assembly resolution 64/112 . . . . . . . . . . . 141


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2 UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation

3. Chapter II amplies article 27, in particular paragraph (d), of the

UNCITRAL Model Law on Cross-Border Insolvency1 (the UNCITRAL

Model Law), discussing the various ways in which cooperation in cross-

border cases might be achieved.

4. Chapter III examines in detail the use of one of the means of coopera-

tion referred to in article 27, paragraph (d), of the UNCITRAL Model Law,

namely cross-border insolvency agreements. The analysis in this chapter is

based on practical experience with the negotiation and use of these agree-

ments, in particular in the cases referred to in annex I. This chapter also

includes a number of what are termed sample clauses, which are based

to varying degrees upon provisions found in the different insolvency agree-

ments. These clauses are included to illustrate how different issues have

been addressed or might be addressed, but are not intended to serve as modelprovisions for direct incorporation into an agreement (see also sect. 3 (c)

(Sample clauses), paras. 16-17 below).

5. Annex I includes summaries of the cases in which the cross-border

insolvency agreements that form the basis of the Practice Guide were con-

cluded. The summaries provide a basic overview of the contents of those

agreements and, if available, of the reasons the agreements were negotiated.

Detailed reasons for using an agreement are not generally included in the

agreement, although there are some exceptions.2

B. Glossary

1. Notes on terminology

6. The following terms are intended to provide orientation to the reader of

the Practice Guide. Since many terms have fundamentally different meaningsin different jurisdictions, an explanation of the use of those terms in the

Practice Guide may assist in ensuring that the concepts discussed are clear

and widely understood. The Practice Guide uses terminology common to the

UNCITRAL Model Law and the UNCITRAL Legislative Guide on Insolvency

Law3 (the Legislative Guide), where relevant. For ease of reference, these

terms are repeated below.

1Legislative Guide on Insolvency Law (United Nations publication, Sales No. E.05.V.10), annex III,part one; text also available from www.uncitral.org under UNCITRAL Texts and Status.

2See, for example, agreements approved in the cases concerning Lehman Brothers Holdings Inc.and Madoff Securities International Limited.

3United Nations publication, Sales No. E.05.V.10; text also available from www.uncitral.org underUNCITRAL Texts and Status.


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Introduction

(a) References in the Practice Guide to court

7. The Practice Guide follows the Legislative Guides use of the word

court and assumes that there is reliance on court supervision throughout

the insolvency proceedings, which may include the power to commenceinsolvency proceedings, to appoint the insolvency representative, to super-

vise that representatives activities and to take decisions in the course of the

proceedings. Although this reliance may be appropriate as a general princi-

ple, alternatives may be considered where, for example, the courts are unable

to handle insolvency work (whether for reasons of lack of resources or lack

of requisite experience) or supervision by some other authority is preferred

(see the Legislative Guide, part one, chap. III (Institutional framework)).

8. For reasons of consistency, the Practice Guide uses the word courtin the same way as article 2, paragraph (e), of the UNCITRAL Model Law

to refer to a judicial or other authority competent to control or supervise

insolvency proceedings.

(b) References in the Practice Guide tocross-border insolvency agreement

9. Cross-border insolvency agreements are most commonly referred to insome States as protocols, although a number of other titles have been

used, including insolvency administration contract, cooperation and com-

promise agreement and memorandum of understanding. The Practice

Guide attempts to compile practice with respect to as many forms of cross-

border insolvency agreements as possible and, since the use of the term

protocol does not necessarily reect the diverse nature of the agreements

being used in practice, the more general term cross-border insolvency

agreement, or more simply insolvency agreement, is used herein.

(c) Rules of interpretation

10. Use of the singular also includes the plural; include and including

are not intended to indicate an exhaustive list; such as and for example

are to be interpreted in the same manner as include or including.

11. Creditors should be interpreted as including both the creditors in theforum State and foreign creditors, unless otherwise specied.

12. References to person should be interpreted as including both natural

and legal persons, unless otherwise specied.


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2. Terms and explanations

13. The following paragraphs explain the meaning and use of certain

expressions that appear frequently in the Practice Guide. Many of these

terms are common to theLegislative Guide and the UNCITRAL Model Lawand their use in the Practice Guide is consistent with their use in those

texts. They are included here for ease of reference:

(a) Assets of the debtor: property, rights and interests of the debtor,

including rights and interests in property, whether or not in the possession

of the debtor, tangible or intangible, movable or immovable, including the

debtors interests in encumbered assets or in third-party-owned assets;

(b) Avoidance provisions: provisions of the insolvency law that

permit transactions for the transfer of assets or the undertaking of obligationsprior to insolvency proceedings to be cancelled or otherwise rendered

ineffective and any assets transferred, or their value, to be recovered in the

collective interest of creditors;

(c) Centre of main interests: the place where the debtor conducts

the administration of its interests on a regular basis and that is therefore

ascertainable by third parties;

(d) Claim: a right to payment from the estate of the debtor, whether

arising from a debt, a contract or other type of legal obligation, whetherliquidated or unliquidated, matured or unmatured, disputed or undisputed,

secured or unsecured, xed or contingent;

(e) Commencement of proceedings: the effective date of insolvency

proceedings whether established by statute or a judicial decision;

(f) Court: a judicial or other authority competent to control or

supervise insolvency proceedings;4

(g) Creditor: a natural or legal person that has a claim against the

debtor that arose on or before the commencement of the insolvencyproceedings;

(h) Creditor committee: a representative body of creditors appointed

in accordance with the insolvency law, having consultative and other powers

as specied in the insolvency law;

(i) Cross-border insolvency agreement: an oral or written agree-

ment intended to facilitate the coordination of cross-border insolvency pro-

ceedings and cooperation between courts, between courts and insolvency

representatives and between insolvency representatives, sometimes alsoinvolving other parties in interest;

4See paras. 7-8 above.


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Introduction

(j) Debtor in possession: a debtor in reorganization proceedings,

which retains full control over the business, with the consequence that the

court does not appoint an insolvency representative;

(k) Deferral: when one court accepts the limitation of its respon-

sibility with respect to certain issues, including for example the ability tohear certain matters and issue certain orders, in favour of another court;

(l) Establishment: any place of operations where the debtor carries

out a non-transitory economic activity with human means and goods or

services;

(m) Insolvency: when a debtor is generally unable to pay its debts

as they mature or when its liabilities exceed the value of its assets;

(n) Insolvency estate: assets of the debtor that are subject to the

insolvency proceedings;

(o) Insolvency proceedings: collective proceedings, subject to court

supervision, either for reorganization or liquidation;

(p) Insolvency representative: a person or body, including one

appointed on an interim basis, authorized in insolvency proceedings to

administer the reorganization or the liquidation of the insolvency estate;

(q) Main proceeding: an insolvency proceeding taking place in the

State where the debtor has the centre of its main interests;5

(r) Non-main proceeding: an insolvency proceeding, other than a

main proceeding, taking place in a State where the debtor has an establishment;6

(s) Ordinary course of business: transactions consistent with both

(i) the operation of the debtors business prior to insolvency proceedings

and (ii) ordinary business terms;

(t) Party in interest: any party whose rights, obligations or interests

are affected by insolvency proceedings or particular matters in the insolvency

proceedings, including the debtor, the insolvency representative, a creditor,an equity holder, a creditor committee, a government authority or any other

person so affected. It is not intended that persons with remote or diffuse

interests affected by the insolvency proceedings would be considered to be

a party in interest;

(u) Priority: the right of a claim to rank ahead of another claim

where that right arises by operation of law;

(v) Reorganization: the process by which the nancial well-being

and viability of a debtors business can be restored and the business continue

5UNCITRAL Model Law, art. 2, para. (b), and art. 16, para. 3.6Ibid., art. 2, paras. (c) and (f). Non-main proceedings conducted in European Union member States

under European Council (EC) Regulation No. 1346/2000 of 29 May 2000 on insolvency proceedingsare referred to as secondary proceedings.


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to operate, using various means, possibly including debt forgiveness, debt

rescheduling, debt-equity conversions and sale of the business (or parts of

it) as a going concern;

(w) Reorganization plan: a plan by which the nancial well-being

and viability of the debtors business can be restored;

(x) Stay of proceedings: a measure that prevents the commence-

ment, or suspends the continuation, of judicial, administrative or other indi-

vidual actions concerning the debtors assets, rights, obligations or liabilities,

including actions to make security interests effective against third parties or

to enforce a security interest; and prevents execution against the assets of

the insolvency estate, the termination of a contract with the debtor and the

transfer, encumbrance or other disposition of any assets or rights of the

insolvency estate.

3. Reference material

(a) References to cases

14. References to specic cases are included throughout the Practice Guide

and particularly in the footnotes. In general, those references are to cases

cited and summarized in annex I, so only a short-form reference is includedin the text of the Practice Guide, e.g. GBFE refers to the proceedings

concerning Greater Beijing First Expressways Limited, Systech to the pro-

ceedings concerning Systech Retail Systems Corporation. References to page

or paragraph numbers in association with those cases are references to the

relevant portion7 of the publicly available8 English version of the agreement;

many of these agreements are available in English only. Where an agreement

is available in other languages, this is indicated in annex I.

(b) References to texts

15. The Practice Guide includes references, where relevant, to several

international texts addressing various aspects of coordination of cross-border

insolvency cases, including:

(a) Concordat: Cross-Border Insolvency Concordat adopted by the

Council of the International Bar Association Section on Business Law (Paris,

7The agreements use different terms, including section, paragraph, clause and article. Forsimplicity of reference, the present text uses paragraph to refer to any numbered part of an agreementand indicates the page where there are no relevant paragraph numbers.

8At the date of publication of the Practice Guide, a few of the agreements cited were not publiclyavailable; they are identied in annex I.


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Introduction

17 September 1995) and by the Council of the International Bar Association

(Madrid, 31 May 1996);

(b) UNCITRAL Model Law: UNCITRAL Model Law on Cross-

Border Insolvency with Guide to Enactment (1997);

(c) Court-to-Court Guidelines: Guidelines Applicable to Court-to-

Court Communications in Cross-Border Cases, published by the American

Law Institute (16 May 2000) and adopted by the International Insolvency

Institute (10 June 2001);

(d) EC Regulation: European Council (EC) Regulation No. 1346/2000

of 29 May 2000 on insolvency proceedings;

(e) Legislative Guide: UNCITRAL Legislative Guide on Insolvency

Law (2004);

(f) CoCo Guidelines: European Communication and Cooperation

Guidelines for Cross-Border Insolvency, prepared by INSOL Europes

Academic Wing (2007).

(c) Sample clauses

16. The sample clauses included in the Practice Guide are merely illustra-

tive, providing examples, based upon actual agreements, of how the provi-sions of a cross-border insolvency agreement addressing the particular issues

discussed in chapter III might be drafted. The user is advised to read the

sample clauses together with the discussion of the relevant issue in the

preceding paragraphs. It should be noted that the sample clauses are not

intended to be used as model clauses and they should not be regarded as

necessarily comprehensive. Moreover, they should not be considered as

forming the basis of what might be regarded as a model agreement. Some

provisions might only be appropriate for a particular case, whereas others

of a more general nature might be more widely and commonly used. Further,some sample clauses are only effective if approved by the responsible courts,

for example when they allocate or touch upon responsibilities of the courts.

17. The Practice Guide therefore emphasizes the individual approach that

has to be taken for each insolvency agreement, recognizing that an insol-

vency agreement has to be drafted for a specic case, taking into considera-

tion the peculiarities of the case and the interests of the parties, as well as

local conditions, including the applicable law.


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9

I. Background

A. The legislative framework for cross-border insolvency

1. Although the number of cross-border insolvency cases has increased

signicantly since the 1990s, the adoption of legal regimes, either domestic

or international, equipped to address cases of a cross-border nature has not

kept pace. The lack of such regimes has often resulted in inadequate anduncoordinated approaches that have not only hampered the rescue of nan-

cially troubled businesses and the fair and efcient administration of cross-

border insolvency proceedings, but have also impeded the protection and

maximization of the value of the assets of the insolvent debtor and are

unpredictable in their application. Moreover, the disparities and, in some

cases, conicts between national laws have created unnecessary obstacles to

the achievement of the basic economic and social goals of insolvency pro-

ceedings. There has often been a lack of transparency, with no clear rules

on recognition of the rights and priorities of existing creditors, the treatmentof foreign creditors and the law applicable to cross-border issues. While

many of these inadequacies are also apparent in domestic insolvency regimes,

their impact is potentially much greater in cross-border cases, particularly

where reorganization is involved.

2. In addition to the inadequacy of existing laws, the absence of predict-

ability as to how they will be applied and the potential cost and delay

involved in application has added a further layer of uncertainty that can

impact on capital ows and cross-border investment. Acceptance of dif-

ferent types of proceedings, understanding of key concepts and the treat-

ment accorded to parties with an interest in insolvency proceedings differ.

Reorganization or rescue procedures, for example, are more prevalent in

some countries than others. The involvement of and treatment accorded to

secured creditors in insolvency proceedings vary widely. Different coun-

tries also recognize different types of proceedings with different effects.

An example in the context of reorganization proceedings is the case in

which the law of one State envisages a debtor in possession continuing toexercise management functions, while under the law of another State in

which contemporaneous insolvency proceedings are being conducted with

respect to the same debtor, existing management will be displaced or the

debtors business liquidated. Many national insolvency laws have claimed,


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for their own insolvency proceedings, application of the principle of uni-

versality, with the objective of a unied proceeding where court orders

would be effective with respect to assets located abroad. At the same time,

those laws do not accord recognition to the universality claimed by foreign

insolvency proceedings. In addition to differences between key conceptsand treatment of participants, some of the effects of insolvency proceed-

ings, such as the application of a stay or suspension of actions against the

debtor or its assets, regarded as a key element of many laws, cannot be

applied effectively across borders.

3. In addition to the lack of national law reform efforts, there has been

a lack of multilateral treaty arrangements with global effect. A few trea-

ties have been negotiated at a regional level, but those arrangements are

generally only possible (and suitable) for countries of a particular region

whose insolvency law regimes and general commercial laws are similar.

Experience has shown that despite the potential of international treaties

to provide a vehicle for widespread harmonization, the effort required to

negotiate such treaties is generally substantial and, as one commentator

has noted, the greater the degree of practical utility that is pursued by

means of a treaty, the greater the difculty in bringing it to fruition and

the greater the risk of ultimate failure. The search for comity in insol-

vency in Europe provides a good example. Beginning in 1960 the inten-tion was to develop a bankruptcy convention that would parallel the 1968

Convention on Jurisdiction and the Enforcement of Judgments in Civil

and Commercial Matters. These efforts led to the 1990 European Con-

vention on Certain International Aspects of Bankruptcy (the Istanbul

Convention). Following only one ratication (Cyprus), the 1990 Conven-

tion was superseded by a draft European Union convention on insolvency

proceedings. Although European Union member States came close to

adopting that draft convention in November 1995, implementation ulti-

mately proved impossible. The convention was revived in the form of aEuropean Council regulation in May 1999, which was adopted by the

Council on 29 May 2000 and came into effect on 31 May 2002 (see

para. 19 below).

B. International initiatives

4. To address the lack of national law reform efforts, several international

initiatives have been launched by certain non-governmental organizations

over the last decade or so to provide a legal framework for harmonization

of cross-border insolvency proceedings.


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Chapter I. Background 11

1. Model International Insolvency Cooperation Act

5. An early project launched by a non-governmental organization was the

Model International Insolvency Cooperation Act (MIICA), developed under

the auspices of Committee J of the Section on Business Law of the Inter-national Bar Association and approved by the Council of the Section on

Business Law and the Council of the International Bar Association in 1989.

The MIICA was a model statute, proposed for domestic adoption, which

provided mechanisms by which a court could assist and act in aid of insol-

vency proceedings being conducted in other jurisdictions. Although failing

to gain wide and active acceptance from Governments and legislators, the

MIICA ensured that the model law concept came to be perceived as a viable

way of solving the impasse caused by persistent failure to successfully con-

clude a global treaty in the area of insolvency. Experience with the MIICAalso indicated the importance to the success of a project involving Govern-

ments in the negotiation process (a key element of the UNCITRAL process),

particularly where the text being developed required action by Governments,

whether legislative or otherwise, for its adoption.

2. Cross-Border Insolvency Concordat

6. Another initiative of Committee J was the development, in the early1990s, of a Cross-Border Insolvency Concordat based on rules of private

international law. The purpose of the Concordat was to suggest guidelines

for cross-border insolvencies that participants or courts could adopt as practi-

cal solutions to a variety of issues. These include designation of the admin-

istrative forum, application of that forums priority rules, rules for cases

involving more than one administrative forum and designation of applicable

rules for avoidance of certain specied pre-insolvency transactions. The ini-

tial application of the Concordat, by some of the judges who had been

instrumental in developing it, was in cases involving Canada and the United

States of America. Cross-border insolvency agreements based on the Con-

cordat model have also been entered into between the United States and

each of the following: Israel, the Bahamas, the Cayman Islands, England,

Bermuda and Switzerland.

7. This form of cooperation has emerged as a common practice, at least

in certain States. The absence of formal treaties or national legislation to

address the problems arising from international insolvencies has encouragedinsolvency practitioners to develop, on a case-by-case basis, strategies and

techniques for resolving the conicts that arise when the courts of different

States attempt to apply different laws and enforce different requirements on

the same set of parties. The terms and duration of agreements vary, and


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amendment or modication in the course of the proceedings takes account

of the changing dynamics of a multinational insolvency to facilitate solutions

for unique problems that arise in the course of the proceedings. An early

use of an insolvency agreement was in the 1992 insolvency proceedings

concerning the Maxwell Communication Corporation. In those proceedings,the corporation was placed into administration in England and contempora-

neously into Chapter 11 proceedings in New York, with administrators and

an examiner appointed respectively.

8. An insolvency agreement may not be the appropriate solution for all

cases, being case-specic as to its content and requiring time for its negotia-

tion as well as a sufcient asset base to justify the costs associated with

negotiation and cooperation between the courts and between the insolvency

representatives in each jurisdiction. Nevertheless, the cases in which theseagreements have been used provide examples of how cooperation and

coordination between the judges, courts and the insolvency profession can

improve the international regime for insolvency in the absence of compre-

hensive national, regional or international law reform solutions. The agree-

ments developed have often provided innovative solutions to cross-border

issues and have enabled courts to address the specic facts of individual

cases. Although there are limitations on the extent to which they can be

used to achieve more widespread harmonization of international insolvency

law and practice, insolvency agreements are being increasingly used andinformation about them is being more and more widely disseminated.

3. UNCITRAL Model Law on Cross-Border Insolvency

9. The UNCITRAL Model Law was adopted by the Commission in 1997.

As stated in its preamble, it focuses on the legislative framework needed to

facilitate cooperation and coordination in cross-border insolvency cases, witha view to promoting the general objectives of:

(a) Cooperation between the courts and other competent authorities

of the enacting State and foreign States involved in cases of cross-border

insolvency;

(b) Greater legal certainty for trade and investment;

(c) Fair and efcient administration of cross-border insolvency pro-

ceedings that protects the interests of all creditors and other interested

persons, including the debtor;

(d) Protection and maximization of the value of the debtors assets;

(e) Facilitation of the rescue of nancially troubled businesses,

thereby protecting investment and preserving employment.


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10. These objectives raise a number of issues that relate to the extent to

which courts, in exercising their powers with respect to administration of the

cases before them, are permitted or authorized to interact with or relate to

foreign courts that might be administering a related case involving the same

debtor. Are courts able, for example, to treat common stakeholders equitably,give foreign stakeholders access on the same basis as domestic stakeholders

or permit another jurisdiction to take principal charge of administering reor-

ganization? Experience has shown, for example, that some courts are often

reluctant or unable to defer to a foreign court and may therefore prefer paral-

lel insolvency proceedings or treat main and non-main proceedings, where

provided for under the relevant insolvency regime, as if they were concurrent

or parallel proceedings. Such a preference may be based upon applicable law

or a desire to protect the interests of domestic creditors.

11. In its resolution 52/158 of 15 December 1997, recommending that

States adopt the UNCITRAL Model Law, the General Assembly provided

a compelling statement of the need for the text, its timeliness and its fun-

damental purpose. Specically, the Assembly noted that increased cross-

border trade and investment led to a greater incidence of cases where

enterprises and individuals had assets in more than one State and there was

often an urgent need for cross-border cooperation and coordination to facili-

tate the supervision and administration of the insolvent debtors assets and

affairs. Inadequate coordination and cooperation in those cases not onlyreduces the possibility of rescuing nancially troubled but viable businesses,

but also impedes a fair and efcient administration of cross-border insolven-

cies, making it more likely that the debtors assets would be concealed or

dissipated, and hinders reorganization or liquidation of debtors assets and

affairs that would be the most advantageous for the creditors and other

interested persons, including the debtor and its employees.

12. The General Assembly went on to note that many States lacked alegislative framework that would make possible or facilitate effective cross-

border coordination and cooperation. It made clear its conviction that fair

and internationally harmonized legislation on cross-border insolvency that

respected the national procedural and judicial systems and was acceptable

to States with different legal, social and economic systems would not only

contribute to the development of international trade and investment, but

would also assist States in modernizing their legislation on cross-border

insolvency.

13. An intergovernmental working group, including representatives of some

72 States, 7 intergovernmental organizations and 10 non-governmental

organizations, negotiated the UNCITRAL Model Law between 1995 and

1997. As a model law, it requires enactment into national law to provide a


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unilateral legislative framework for cross-border insolvency proceedings. The

UNCITRAL Model Law focuses upon what is required to facilitate the

administration of cross-border insolvency cases and provide an interface

between jurisdictions. As such, it respects the differences among national

procedural laws and does not attempt a substantive unication of insolvencylaw (substantive insolvency law is addressed in the Legislative Guide).

14. The text of the UNCITRAL Model Law offers solutions that help in

several modest but signicant ways, including the following:

(a) Providing the person administering a foreign insolvency proceed-

ing (foreign representative) with access to the courts of the enacting State,

thereby permitting the foreign representative to seek a temporary breathing

space, and allowing the courts in the enacting State to determine what

coordination among the jurisdictions or other relief is warranted for optimal

disposition of the insolvency proceedings;

(b) Determining when a foreign insolvency proceeding should be

accorded recognition and what the consequences of recognition may be,

including the relief available to assist the foreign proceeding;

(c) Establishing simplied procedures for recognition;

(d) Providing a transparent regime for the right of foreign creditors

to commence, or participate in, an insolvency proceeding in the enactingState;

(e) Permitting courts and insolvency representatives in the enacting

State to cooperate more effectively with foreign courts and foreign

representatives involved in insolvency proceedings;

(f) Authorizing courts in the enacting State and persons administering

insolvency proceedings in the enacting State to seek assistance abroad;

(g) Establishing rules for coordination where an insolvency proceed-

ing in the enacting State is taking place concurrently with insolvencyproceedings in foreign States.

15. The Guide to Enactment of the UNCITRAL Model Law on Cross-

Border Insolvency9 emphasizes the centrality of cooperation to cross-border

insolvency cases, in order to achieve efcient conduct of those proceedings

and optimal results. A key element is cooperation between the courts involved

in the various proceedings and between those courts and the insolvency rep-

resentatives appointed in the different proceedings, as well as between the

insolvency representatives (arts. 25-26 of the Model Law). An essential

9Legislative Guide on Insolvency Law, annex III, part two; text also available from www.uncitral.org under UNCITRAL Texts and Status.


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element of cooperation may be establishing communication among the

administering authorities of the States involved. While the Model Law pro-

vides the authorization for cross-border cooperation and communication

between judges, it does not specify how that cooperation and communication

might be achieved, leaving it up to each jurisdiction to determine or applyits own rules. It notes, however, that the ability of courts, with the appropriate

involvement of the parties, to communicate directly and to request informa-

tion and assistance directly from foreign courts or foreign representatives

is intended to avoid the use of time-consuming procedures traditionally in

use, such as letters rogatory. As insolvency proceedings are inherently chaotic

and value evaporates quickly with the passage of time, this ability is critical

when courts consider that they should act with urgency.10

16. As at the end of 2009, legislation based upon the UNCITRAL ModelLaw had been enacted in Australia (2008); the British Virgin Islands, over-

seas territory of the United Kingdom of Great Britain and Northern Ireland

(2005); Canada (2009); Colombia (2006); Eritrea (1998); Great Britain

(2006); Japan (2000); Mauritius (2009); Mexico (2000); Montenegro (2002);

New Zealand (2006); Poland (2003); the Republic of Korea (2006); Romania

(2003); Serbia (2004); Slovenia (2008); South Africa (2000); and the United

States (2005).11

4. Regional arrangements

17. While a few treaties have been negotiated at a regional level, these

arrangements are generally only possible (and suitable) for countries of a

particular region whose insolvency law regimes and general commercial laws

are similar. Of necessity, their application is limited to the regional group

of contracting States.

18. Regional multilateral treaties on insolvency include, in Latin America, the

Montevideo Treaties of 1889 and 1940 and, in the Nordic region, the Conven-

tion between Denmark, Finland, Iceland, Norway and Sweden regarding Bank-

ruptcy (concluded in 1933, amended in 1977 and 1982). While no doubt

improving the situation among those contracting States, the increasing globaliza-

tion of business and investment and the consequent spread of international insol-

vencies is likely to include non-participating States, underlining the limitations

inherent in any regional treaty regime. Nevertheless, regional arrangements may

prove to be a useful starting point for broader cooperation.

10Ibid., para. 179.11This information is regularly updated on the UNCITRAL website (www.uncitral.org) under Status

of Conventions.


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19. The EC Regulation (see Introduction, para. 15 above) regulates the

complex problems of cross-border insolvency by creating a binding frame-

work within which insolvency proceedings taking place in any member State

of the European Union are recognized and enforced throughout the rest of

the Union. The Regulation recognizes that the proper functioning of theinternal European market requires the efcient and effective operation of

cross-border insolvency proceedings. One impediment to that proper func-

tioning, which the Regulation tries to address, is forum shopping, where

parties transfer assets or judicial proceedings from one member State to

another, seeking to obtain a more favourable legal position (recitals (2) and

(4)). The Regulation imposes a mandatory regime for the exercise of juris-

diction to open insolvency proceedings and choice of law rules, which deter-

mine the law that will govern each relevant aspect of insolvency proceedings

to which the Regulation applies and recognizes the importance of coopera-tion between the proceedings. Article 31 establishes the duty of insolvency

representatives of different concurrent insolvency proceedings to cooperate

and communicate information, but does not provide much guidance on the

detail of that communication and cooperation. That is addressed by the CoCo

Guidelines (see Introduction, para. 15 above), which constitute a set of stand-

ards for communication and cooperation by insolvency representatives in

cross-border insolvency cases.

5. Guidelines Applicable to Court-to-CourtCommunications in Cross-Border Cases

20. In 2000, the American Law Institute developed the Court-to-Court

Guidelines as part of its work on transnational insolvency in the countries

of the North American Free Trade Agreement (NAFTA). A team of judges,

lawyers and academics from the three NAFTA countries, Canada, Mexico

and the United States, worked jointly on that project. The Court-to-CourtGuidelines are intended to encourage and facilitate cooperation in interna-

tional cases. They are not intended to alter or change the domestic rules or

procedures that are applicable in any country, nor to affect or curtail the

substantive rights of any party in proceedings before the courts. They have

been approved by both the International Insolvency Institute and the Insol-

vency Institute of Canada and endorsed by various courts. Further, they have

been used by courts in several cross-border insolvency cases, for example

PSINetand Matlack (see annex I).


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17

II. Possible forms of cooperation

under article 27 of

the UNCITRAL Model Law

Article 27. Forms of cooperation

Cooperation referred to in articles 25 and 26 may be implemented byany appropriate means, including:

(a) Appointment of a person or body to act at the direction of

the court;

(b) Communication of information by any means considered

appropriate by the court;

(c) Coordination of the administration and supervision of the

debtors assets and affairs;

(d) Approval or implementation by courts of agreements concern-

ing the coordination of proceedings;

(e) Coordination of concurrent proceedings regarding the same

debtor;

(f) [The enacting State may wish to list additional forms or

examples of cooperation].

1. A widespread limitation on cooperation and coordination between

judges from different jurisdictions in cases of cross-border insolvency derives

from the lack of a legislative framework, or from uncertainty regarding the

scope of the existing legislative authorization, for pursuing cooperation with

foreign courts. The UNCITRAL Model Law provides that legislative frame-

work, authorizing cross-border cooperation and communication between

courts. It does not, however, specify how that cooperation and communica-

tion might be achieved. To assist those States that might have a limited

tradition of direct cross-border judicial cooperation and States where judicialdiscretion has traditionally been constrained, article 27 of the Model Law

lists possible forms of cooperation that might be used to coordinate cross-

border insolvency cases.


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A. Article 27, paragraph (a): Appointment of a person or

body to act at the direction of the court

2. Such a person or body may be appointed by a court to facilitate

coordination of insolvency proceedings taking place in different jurisdictionsconcerning the same debtor. The person may have a variety of possible

functions, including acting as a go-between for the courts involved, espe-

cially where issues of language are present; developing an insolvency agree-

ment; and promoting consensual resolution of issues between the parties.

Where the court appoints such a person, typically the court order will indi-

cate the terms of the appointment and the powers of the appointee. The

person may be required to report to the court or courts involved in the

proceedings on a regular basis, as well as to the parties.

3. In theMaxwell case, for example, the United States court appointed an

examiner with expanded powers under Chapter 11 of the United States Bank-

ruptcy Code and directed it to work to facilitate coordination of the different

proceedings. In the Nakash case, an examiner was also appointed by the

United States court to, inter alia, attempt to develop an insolvency agreement

for harmonizing and coordinating the United States Chapter 11 proceedings

with certain proceedings taking place in Israel and, ultimately, to facilitate

a consensual resolution of the United States Chapter 11 case. In the Matlack

case, the court order approving the insolvency agreement provided for an

information ofcer to periodically or upon request deliver to the court reports

summarizing the status of the foreign insolvency proceedings and such other

information as the court might order.

B. Article 27, paragraph (b): Communication of

information by any means considered

appropriate by the court

4. An essential element of cooperation may be establishing communica-

tion between the administering authorities of the States involved. Articles 25

and 26 of the UNCITRAL Model Law authorize direct communication

between courts, between courts and insolvency representatives and between

insolvency representatives. Where the Model Law has been adopted, these

provisions establish the necessary legislative authorization for that commu-

nication, but do not specify in any detail how that communication shouldtake place beyond suggesting, in article 27, that it may be implemented by,

for example, communicating information by any means considered appropri-

ate by the court. The Model Law envisages that communication as authorized

would be subject to any mandatory rules applicable in an enacting State,


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Chapter II. Possible forms of cooperation under article 27 of the UNCITRAL Model Law 19

such as rules restricting the communication of information for reasons, inter

alia, of protection of privacy or condentiality.12 The ability of courts to

communicate directly and to request information and assistance directly

from foreign courts or foreign representatives, avoiding the use of time-

consuming procedures traditionally in use, such as letters rogatory, may becritical when courts consider that they should act with urgency.13 Where the

Model Law has not been enacted, the legislative authorization for

communication in cross-border proceedings might be lacking.

5. Establishing communication in cross-border insolvency cases may assist

cross-border proceedings in many ways. It may, for example, assist parties

in better understanding the implications or application of foreign law, par-

ticularly the differences or overlaps that may otherwise lead to litigation;

facilitate resolution of issues through a negotiated result acceptable to all;and elicit more reliable responses from parties, avoiding inherent bias and

adversarial distortion that may be apparent where parties represent their own

particular concerns in their own jurisdictions. It may also serve international

interests by facilitating better understanding that will assist in encouraging

international business and preserving value that would otherwise be lost

through fragmented judicial action. Some of the potential benets may be

hard to identify at the outset, but may become apparent once the parties

have communicated. Cross-border communication may reveal, for example,

some fact or procedure that will substantially inform the best resolution ofthe case and may, in the longer term, serve as an impetus to law reform.

6. Communication of information may take place by exchange of docu-

ments (e.g. copies of formal orders, judgements, opinions, reasons for deci-

sions, transcripts of proceedings, afdavits and other evidence) or orally. The

means of communication may be by mail, fax, e-mail or other electronic

means, or by telephone or videoconference. Copies of written communica-

tions may also be provided to the parties in accordance with applicable noticeprovisions. Communication may be effected directly between judges or

between or through court ofcials (or a court-appointed intermediary, as noted

in paras. 2-3 above) or insolvency representatives, subject to local rules. The

development of new communication technologies supports various aspects of

cooperation and coordination, with the potential to reduce delays and, as

appropriate, facilitate face-to-face contact. As global litigation multiplies,

these methods of direct communication are increasingly being used. Video-

conferences have been used in preference to telephone conferences, as they

provide reasonable control of the process and facilitate disciplined organiza-tion of the communication as the participants can hear and see each other.

12Legislative Guide on Insolvency Law, annex III, part two, para. 182.13Ibid., para. 179.


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7. Communication of information between judges or other interested par-

ties raises a number of issues that need to be considered to ensure that all

communication is open, effective and credible and that proper procedures

are followed. At a general level, it might be appropriate to consider whether

communication should be treated as a matter of course in cross-border pro-ceedings or resorted to only where determined to be strictly necessary;

whether it should cover only issues of procedure or may also deal with

substantive matters; whether a judge may advocate that a particular course

of action be taken; and, with respect to safeguards, such as those mentioned

below (see chap. III, paras. 34-36 and 195-200), whether they should apply

in all cases or whether there might be exceptions.

8. In any particular case it will be necessary to determine, as appropri-

ate to a particular jurisdiction, the correct procedures to be followed,including the persons who are to be party to the communication and any

limitations that will apply; whether the parties share the same intentions

or understanding with respect to communication; any safeguards that will

apply to protect the substantive and procedural rights of the parties; the

language of the communication and any consequent need for translation

of written documents or interpretation of oral communications; accept-

able methods of communication; and the issues to be considered. Insol-

vency agreements generally seek to balance the interests of the different

stakeholders and ensure that no one is prejudiced in any material wayby the mechanisms to be included in the agreement. Safeguards might

provide that parties are entitled to be notied of any proposed commu-

nication (e.g. all parties and their representatives or counsel), to object

to the proposed communication and to be present when the communica-

tion takes place and actively participate, and that a record of the com-

munication should be made, becoming part of the record of the

proceedings and available to counsel, subject to any measure the courts

may deem appropriate to protect condentiality.

9. The different approaches taken to communication between the courts

and parties serve to illustrate some of the problems that might be encoun-

tered. In addition to the absence of specic authorization, there is very

often hesitance or reluctance on the part of courts of different jurisdic-

tions to communicate directly with each other. That hesitance or reluc-

tance may be based upon ethical considerations, legal culture, language

or lack of familiarity with foreign laws and their application. Some States

take a relatively liberal approach to communication between judges,while in other States judges may not communicate directly with parties

or insolvency representatives or, indeed, with other judges. In some

States, ex parte communications with the judge are considered normal

and necessary, while in other States such communications would not be


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acceptable.14 Within States, judges and lawyers may have quite different

views about the propriety of contacts between judges without the knowl-

edge or participation of the representative or counsel for the parties.

Some judges, for example, accept that there is no difculty with private

contact among them, while some lawyers would strongly disagree withthat practice. Courts typically focus on the matters before them and may

be reluctant to provide assistance to related proceedings in other States,

particularly when the proceedings for which they are responsible do not

appear to involve an international element in the form of a foreign debtor,

foreign creditors or the foreign operations of the debtor.

10. Courts may adopt guidelines, such as the Court-to-Court Guidelines, to

coordinate their activities, foster efciency and ensure that stakeholders in

each State are treated consistently. Such guidelines typically are not intendedto alter or change the domestic rules or procedures that are applicable in any

country, and are not intended to affect or curtail the substantive rights of any

party in proceedings before the courts. Rather, they are intended to promote

transparent communication between courts, permitting courts of different juris-

dictions to communicate effectively with one another, and may be adopted by

courts for general use or incorporated into specic insolvency agreements.

C. Article 27, paragraph (c): Coordination of

the administration and supervision of

the debtors assets and affairs

11. The conduct of cross-border insolvency proceedings will often require

assets of the different insolvency estates to continue to be used, realized or

disposed of in the course of the proceedings. Coordination of such use, reali-

zation and disposal will help to avoid disputes and ensure that the benet of

all parties in interest is the key focus, particularly in reorganization. Coordina-tion may also be relevant to investigating the debtors assets and considering

possible avoidance proceedings. Some of the issues to be considered in facili-

tating coordination will include the location of the various assets; determina-

tion of the law governing those assets; identication of the parties responsible

for determining how the assets can be used or disposed of (e.g. the insolvency

representative, the courts or in some cases the debtor), including the approvals

required; the extent to which responsibility for those assets can be shared

14For example, in the NAFTA countries, ex parte communications with the judge are accepted inMexico, while in Canada and the United States they are not. See American Law Institute, TransnationalInsolvency: Cooperation Among the NAFTA Countries Principles of Cooperation Among the NAFTA

Countries (Huntington, New York, Juris Publishing, 2003), comment to Procedural Principle 10, TopicIV.B., pp. 57-58.


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among or allocated to different parties in different States; and how information

can be shared to ensure coordination and cooperation.

D. Article 27, paragraph (d): Approval or implementationby courts of agreements concerning the coordination

of proceedings

12. As noted above, the insolvency profession, faced with the daily neces-

sity of dealing with insolvency cases and attempting to coordinate admin-

istration of cross-border insolvencies in the absence of widespread adoption

of facilitating national or international laws, has developed cross-border

insolvency agreements. These are designed to address the potential proce-dural and substantive conicts arising in those cross-border cases, facilitat-

ing their resolution through cooperation between the courts, the debtor and

other stakeholders across jurisdictional lines to work efciently and increase

realizations for stakeholders in potentially competing jurisdictions.

13. These agreements do not replace enactment of the UNCITRAL Model

Law as a means of facilitating cross-border cooperation and coordination, but

may be used in conjunction with enactment of the Model Law and, in fact,

complement its enactment. They are discussed in detail in chapter III below.

E. Article 27, paragraph (e): Coordination of concurrent

proceedings regarding the same debtor

14. When there are concurrent cross-border proceedings with respect to

the same debtor, the UNCITRAL Model Law aims to foster decisions that

would best achieve the objectives of those proceedings. Article 29 providesguidance to a court that is dealing with cases where the debtor is subject

to both foreign and local proceedings, addressing ways in which those pro-

ceedings should be coordinated, particularly with respect to the provision of

relief, to ensure that the different proceedings can move forward without

being unnecessarily suspended by the operation of a stay. For example,

investigation of the debtors assets may involve assets located in a number

of different jurisdictions and such investigation may be hampered by the

operation of a stay in one or more of those jurisdictions. In order to proceed

with the investigation, relief from the stay might be required. Similarly,proceedings commenced in one State might be assisted by the application

of a stay in another State where no insolvency proceedings have commenced

with respect to the debtor but where the debtor has assets. Recognition of

the stay in that second State would assist in protecting the assets for the


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benet of all creditors. In recognizing and implementing a stay ordered by

another court, a court might consult with the issuing court regarding the

interpretation and application of the stay, possible modication of, or relief

from, the stay, and the enforcement of the stay.

15. Concurrent proceedings may also be coordinated by way of joint or

coordinated hearings (see chap. III, paras. 154-159) and, in the case of

reorganization, by coordinating the preparation and content of reorganization

plans, particularly where the same or a similar plan is required in each State

involved in the insolvency proceedings. Coordination may also be relevant

to negotiation of the plan with creditors, procedures for approval of the plan

and the role to be played by the courts, particularly with respect to approval

of the plan and its implementation.

16. Chapter V of the UNCITRAL Model Law (arts. 28-32) addresses certain

specic aspects of coordination of concurrent proceedings, namely commence-

ment of local proceedings after recognition of foreign main proceedings,

coordination of relief, coordination of multiple proceedings, the application of

a presumption of insolvency and rules of payment in concurrent proceedings.

F. Article 27, paragraph (f): Other forms of cooperation

17. Forms of cooperation not specically mentioned in article 27 might

include the following.

1. Questions of jurisdiction and allocation of disputes amongcooperating courts for resolution

18. Reaching an appropriate level of cooperation may require courts in the

States in which insolvency proceedings have commenced to coordinate their

efforts and avoid the sorts of conict that might arise from the traditional

approaches of reciprocity and the rst-to-judgement rule (which permits para-

llel litigation involving the same parties and issues to proceed in two coun-

tries, with the result governed by the rst court to reach a decision). In some

countries, the anti-suit injunction, restraining a party from commencing or

continuing proceedings in another jurisdiction, may also create conict15 and

15

In a case concerning parallel insolvency proceedings in the United States and Belgium, the UnitedStates appellate court adopted a restricted approach to enjoining foreign proceedings and acknowledgedthat the courts might enter an anti-suit injunction only on the rare occasions when needed to protect jurisdiction or an important public policy. The court quoted as an example a case where the foreignproceeding had only been initiated for the sole purpose of terminating the United States claim andwhere the foreign court had enjoined parties from pursuing action in the United States. See StoningtonPartners, Inc. v. Lernout & Hauspie Speech Products N.V., 310 F.3d 118, 127 (3d Cir. 2002).


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hamper the successful conduct of parallel insolvency proceedings. Litigation

associated with such injunctions tends to be prolonged. Cooperation may

involve, for example, identifying different matters to be brought before

respective courts (which might be agreed at the level of the parties and not

involve a decision by the courts); courts deferring to the jurisdiction or todecisions of other courts; and, to the extent permitted, allocating responsibil-

ity for various matters between the courts to facilitate coordination and avoid

duplication of effort. Among some States, there is a trend of some courts

in multinational cases attempting to determine the optimal forum for each

case rather than relying on the traditional rules. This solution has been used

most frequently in insolvency cases because of the universal jurisdiction

characteristic of insolvency.

19. As noted above, determining the most appropriate forum may involveone court deferring to another (see chap. III, paras. 59-64 and 75-78). One

court might defer to the jurisdiction of another court where, for example, a

particular action may be possible in the second court but not in the rst. In

the Maxwell case, for example, where a creditor would have been subject

to an avoidance action in the United States but not in England, the English

court deferred to the jurisdiction of the United States court, with all parties

agreeing that the use of the United States law in this case would be territo-

rial. After considering the matter, however, the United States court concluded

that the law of the jurisdiction having the greatest interest in the outcomeof the controversy, in this case English law, should govern. The United States

court acknowledged that, in an age of multinational corporations, it may be

that two or more countries have equal claim to be the home country of the

debtor. Deferral might lead to a legal action commenced in one court being

dismissed in order to allow the court in which a parallel action has been

commenced to make a decision.16

20. Deferring to another court might not be possible in all cases, as courtsare often obliged to exercise jurisdiction or exclusive control over certain

matters. Some legal systems, in particular civil law jurisdictions, may also

have procedural rules that limit their ability to defer to another court. How-

ever, the insolvency representative may have discretion to simply not pursue

a given action in its home court, electing to let the representative of a related

proceeding in another State pursue the action there.

16See, for example, Victrix Steamship Co., S.A. v. Salen Dry Cargo A.B., 825 F.2d 709 (2d Cir.1987), in which a United States court approved dismissal of a claim against a debtor in a Swedishinsolvency proceeding in deference to that proceeding; and Cunard Steamship Co. v. Salen Reefer Serv.A. B., 773 F.2d 452 (2d Cir. 1985), which involved a similar dismissal of an arbitration in favour of aninsolvency proceeding


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2. Coordination of the ling, determinationand priority of claims

21. Coordinating the procedures for verication and admission of claims

may assist the administration of multiple cross-border insolvency proceed-ings involving large numbers of creditors in different States. Various meas-

ures could be adopted, for example determining a single jurisdiction for the

submission, verication and admission of claims and allocating responsibil-

ity for that process to the court or the insolvency representative; coordinating

that process where claims are to be submitted in more than one proceeding,

including requiring insolvency representatives to share lists of creditors and

claims admitted, and aligning submission deadlines and procedures; recog-

nizing in other States the claims veried and admitted in a given State;

establishing priorities of claims; and so forth. Coordination of treatment ofclaims is one of the issues commonly addressed in cross-border insolvency

agreements (see chap. III, paras. 128-139).


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27

III. Cross-border insolvency agreements

A. Preliminary issues

1. As noted above (see chap. II, paras. 12-13), an increasingly important

tool for facilitating the management of multiple cross-border insolvencies is

the cross-border insolvency agreement.

2. Some of the international projects targeting the facilitation of cross-

border insolvency proceedings touch more or less explicitly on these agree-

ments, referring in particular to cross-border protocols and, in some cases,

recommending their use. Some projects, for example, have developed prin-

ciples to assist with the negotiation of such agreements, including in par-

ticular, the Concordat. The CoCo Guidelines recommend the use of such

agreements as the best means of achieving cooperation, while the Court-to-

Court Guidelines make reference to the use of insolvency agreements in the

context of joint hearings. As discussed below, some insolvency agreementsincorporate the terms of these instruments by reference; others model specic

provisions upon the drafting used in these texts.

3. Drawing upon practical experience, the following discussion examines

the nature and use of cross-border insolvency agreements, outlines some of

the conditions supporting their use and identies the range of issues addressed

in existing agreements, reecting on the manner in which they have been

treated in different cases.

1. Contents

4. Insolvency agreements are agreements entered into for the purpose of

facilitating cross-border cooperation and coordination of multiple insolvency

proceedings in different States concerning the same debtor. To quote the

court in MacFadyen, such an agreement is a proper and common-sense

business arrangement to make, and one manifestly for the benet of allparties interested. Typically, they are designed to assist in the management

of those proceedings and are intended to reect the harmonization of pro-

cedural rather than substantive issues between the jurisdictions involved

(although in limited circumstances, substantive issues may also be addressed).


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They vary in form (written or oral) and scope (generic to specic) and may

be entered into by different parties. Simple generic agreements may empha-

size the need for close cooperation between the parties, without addressing

specic issues, while more detailed, specic agreements establish a frame-

work of principles to govern multiple insolvency proceedings and may beapproved by the courts involved. They may reect agreement between the

parties to take, or refrain from taking, certain steps or actions.

5. Though differing in form, these agreements tend to regulate a similar

range of issues and are nearly always intended to be binding on the parties

that enter into them. They are most commonly referred to as protocols,

although a number of other titles have been used, including insolvency

administration contract, cooperation and compromise agreement and

memorandum of understanding.

6. These agreements have been successfully used in insolvency proceed-

ings concerning both reorganization and liquidation and in a variety of situ-

ations, including cases involving multiple plenary proceedings; ancillary

proceedings commenced in different States affecting the same parties; main

and non-main insolvency proceedings; insolvency proceedings in one State

and non-insolvency proceedings with respect to the same debtor in another

State; and insolvency proceedings with respect to enterprise groups. They

have also been used in cases involving States with different legal traditions,that is, both common law and civil law.

7. In addition to promoting the efcient worldwide coordination and reso-

lution of multiple proceedings against a debtor, cross-border insolvency

agreements are also intended to protect the fundamental local rights of each

of the parties involved in those proceedings. Their use has effectively reduced

the cost of litigation17 and enabled parties to focus on the conduct of the

insolvency proceedings, rather than on resolving conict of laws and other

similar disputes. As such, they are considered by many practitioners whohave been involved with their use as the key to developing appropriate solu-

tions for particular cases, without which a successful conclusion to the pro-

ceedings would have been very unlikely. Their increasing use suggests that

in time they may become the norm in cases with a signicant international

element, although their use is not ubiquitous, currently being limited to a

handful of States.

8. Typically, these agreements are tailored to address the specic issues

of a case and the needs of the parties involved. They may be designed to

17In theEverfresh proceedings, for example, it has been estimated that enhancement of value throughthe insolvency agreement, which involved the creditors and restrained unsecured creditors from takingdetrimental actions, was in the order of 40 per cent.


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Chapter III. Cross-border insolvency agreements 29

facilitate the development of a framework of general principles to address

basic administrative issues arising out of the cross-border and international

nature of the insolvency proceedings, for example:

(a) To promote certainty and efciency with respect to management

and administration of the proceedings;

(b) To help clarify the expectations of parties;

(c) To reduce disputes and promote their effective resolution where

they do occur;

(d) To assist in preventing jurisdictional conict;18

(e) To facilitate restructuring;

(f) To assist in achieving cost savings by avoiding duplication of

effort and competition for assets and avoiding unnecessary delay;

(g) To promote mutual respect for the independence and integrity of

the courts and avoid jurisdictional conicts;

(h) To promote international cooperation and understanding between

judges presiding over the proceedings and between the insolvency representatives

of those proceedings;

(i) To contribute to the maximization of value of the estate.

9. Unfamiliarity with the use of such agreements has led to some misap-prehension that they may be used to enable a party to circumvent or defer

its legal obligations, duties or limitations or impose them on the parties in

another State in a way not permitted under the national law of either party.

However, an agreement is not a tool for circumventing legal obligations, but

rather a tool for working out the best possible means of coordinating the

proceedings in the States involved, within the limitations of the domestic

legal regimes of those States. This principle applies to all parties, including

the courts, which must abide by their national laws. The extent to whichcourts might interpret that law to facilitate cross-border cooperation is a

different issue.

2. Circumstances supporting use of a cross-border insolvency agreement

10. Despite the case-specicity of insolvency agreements, the existence of

certain circumstances in a particular case might be regarded as supporting

18The insolvency agreement in the Maxwell proceedings, for example, resulted in the English andUnited States insolvency representatives performing in such a way that no conict requiring judicialresolution arose.


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the use of an agreement to facilitate cross-border cooperation and coordina-

tion. The circumstances noted below should not be regarded as an inclusive

or determinative checklist, but rather as indicators that an agreement might

be helpful; notwithstanding the existence of a number of these factors in a

particular case, it might be decided that for other reasons an insolvencyagreement is not required or desirable. Subject to consideration of what

might be permitted under the law of each State, the circumstances supporting

an agreement might include:

(a) Cross-border insolvency proceedings with a considerable number

of international elements, such as signicant assets located in multiple

jurisdictions;

(b) A complex debtor structure (for example, an enterprise group with

numerous subsidiaries) or complex intertwining of the operations of thedebtor;19

(c) Different types of insolvency procedures in the States involved,

for example reorganization with replacement of the management by insol-

vency representatives in one forum and the debtor in possession in another

or a combination of liquidation, reorganization and other types of procedures;20

(d) Sufciency of assets to cover the costs of drafting the

agreement;

(e) The availability of time for the negotiations. Insolvency agree-ments may not always be an option as they require time for negotiation.

This might be problematic where urgent action is required;

(f) The similarity of substantive insolvency laws;

(g) Legal uncertainty regarding the resolution of choice of law or

choice of forum questions;

(h) The ordering of contradictory stays in the different proceedings;

(i)The existence of a cash management system providing for thedeposit of cash into a centralized account and the sharing of cash among

members of an international group of companies;

(j) The employment of the insolvency representatives appointed to

the different insolvency proceedings by the same international company. This

has occurred, for example, in cases involving the Hong Kong Special

19The debtor structure might also include, for example, separate companies in different States that

are owned by the same individual and closely intertwined, such as in theMadoffcross-border agreement,part C. The debtor structure may also refer to a globally operating enterprise group where all manage-ment decisions concerning the group members in one jurisdiction are taken in another jurisdiction, suchas in Smurt-Stone (see the motion of the debtors for an order approving the cross-border insolvencyagreement in Re Smurt-Stone Container Corporation, et. al, Case No. 09-10235, United States Bank-ruptcy Court for the District of Delaware, 20 February 2009, para. 9).

20See, for example, Lehman Brothers.


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Chapter III. Cross-border insolvency agreements 31

Administrative Region of China (Hong Kong SAR) and the British Virgin

Islands and the Hong Kong SAR and Bermuda.21

3. Timing of negotiation

11. As the court in Calpine observed, the negotiation of an insolvency

agreement is a matter of discussion, negotiation and cooperation between

parties before it is presented to the courts for review and approval. That

negotiation may take place at the beginning of a case or during the case as

issues arise and more than one agreement may be negotiated to cover dif-

ferent issues. Although there are examples of agreements negotiated in the

course of proceedings, for example in the Maxwell case, most of the agree-

ments considered in the Practice Guide were negotiated prior to the com-mencement of proceedings. This approach may assist in preventing potential

disputes from the outset.

12. The timing of negotiation, however, depends on how much time is

available prior to the commencement of the proceedings or for the resolu-

tion of disputes in proceedings already commenced. For example, in the

Federal-Mogul case, the parties had six months to negotiate the agreement,

with the commencement of formal proceedings always available as an alter-

native. The time available for negotiation, reected in the level of detailevident in the agreement, enabled the parties to resolve a number of com-

plex and sensitive issues, such as the extent to which the insolvency rep-

resentative could delegate its powers to another insolvency representative

or party, including the debtor in possession in another jurisdiction. In the

case ofCollins & Aikman,22 an agreement could not be negotiated because

the parties only had a few days prior to commencement of the proceedings.

In theLehman Brothers insolvency, involving some 75 separate and distinct

bankruptcy proceedings in some 16 jurisdictions, preliminary discussionsto explore the possibility of establishing a framework agreement for coop-

eration between the various debtor entities began in the weeks following

the commencement of proceedings in the United States in September 2008.

An initial draft agreement was circulated in February 2009 and, after further

21See, for example, GBFEand Peregrine.22The Collins & Aikman Group was a leading supplier of automotive components. In Europe alone,

it had 24 companies spread over 10 countries with some 4,000 employees and 27 operational sites. In

May 2005, voluntary petitions were led in the United States for reorganization of the United States partof the group. In July 2005, the European sub-group of companies applied to the High Court in Englandfor administration orders over all of the operating companies in Europe. The English insolvency repre-sentatives immediately recognized the close interrelationship between the European companies and devel-oped a coordinated approach to the continuation of the businesses, though conclusion of a cross-borderagreement was not possible due to time constraints. See In the Matter of Collins & Aikman Europe, SA,the High Court of England and Wales, Chancery Division in London, [2006] EWHC 1343 (Ch).


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intense negotiations, the resulting agreement, signed by a group of initial

signatories, was submitted in May 2009 to the United States court for

approval. It is anticipated that additional parties will join the agreement

over time.23

13. In other cases, proceedings such as non-main proceedings may be com-

menced on the application of the insolvency representative of the main pro-

ceeding with the sole purpose of assisting that main proceeding.24 The

insolvency representative of the main proceeding may have a clear idea of

what cooperation and coordination is going to be required before applying

for commencement of the non-main proceeding and thus negotiation of an

insolvency agreement may be relatively quick and uncontroversial.

14. The time required for negotiation of an agreement varies from case tocase and depends on a number of factors, such as the knowledge of the

parties of the key features of the debtor and of any conicts likely to be

encountered in the course of the proceedings. In simple cases, obtaining this

degree of knowledge and the ensuing negotiation may be possible within a

few days, but typically the time frame would be longer.

4. Parties

15. Very often the negotiation of cross-border insolvency agreements is initi-

ated by the parties to the proceedings, including the insolvency practitioners

or insolvency representatives and, in some cases, the debtor (including a

debtor in possession),25 or at the suggestion and with the encouragement of

the court; some courts have explicitly encouraged the parties to negotiate an

agreement and seek the courts approval.26 The early involvement of the courts

may, in some cases, be a key factor in the success of the agreement.

16. Typically, the parties that enter into an agreement vary depending upon

the applicable law and what is permitt

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